How do taxpayers account for and report the sale of a capital asset when the amount ultimately payable is unknown in the year of the transaction? Alternatively, a buyer and seller may agree to a payment structure whereby proceeds will become payable upon the realizations of certain milestones related to the purchased asset. What happens, however, when a sale contract provides for the possibility of payments outside of the year of the sale? Buyers and sellers are increasingly incorporating such terms in sale contracts, as these provisions offer a level of risk mitigation for the buyer by deferring payments and tying them to conditional outcomes, while also providing potential upsides to sellers if the sale proves lucrative for the buyer.įor example, a contract may provide for a partial cash payment from the buyer to the seller in the year of the sale, but also provide that the buyer shall pay the seller a future percentage of earnings derived from the asset for a set number of years.
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